American unconventional oil and the economic viability of the oil sands

Hydraulic fracturing (“fracking”) of tight and shale oil in the United States may be the biggest economic force determining the future of Canada’s bitumen sands. The Globe and Mail recently printed an interesting article on how the development of unconventional oil in the United States could undermine the business model of the oil sands: “a belief in unfettered access to an insatiably oil-hungry U.S. market has been a central underlying assumption of the great energy expansion under way in Alberta.” If the U.S. can satisfy domestic oil demand with their own unconventional sources, the huge investment that has been made in Canada’s oil sands may never produce a reasonable economic return.

This is one more risk that should be borne in mind when making energy investment decisions. Unfortunately, the climate system doesn’t care about the source of greenhouse gas emissions. America’s newfound bounty of unconventional oil and gas will probably make it even harder to avoid catastrophic climate change.

“Perhaps even more significant to Obama’s decision [to delay a decision on the Keystone XL pipeline until after the 2012 election] than the Keystone XL protests and threats of European Union sanction was that the United States was hosting an oil boom of its own. In a few short years after the American economy’s vicious downturn in the fall of 2008, technological breakthroughs in hydraulic fracturing had combined with Obama’s generous stimulus program to ignite the biggest increase in US domestic oil production in half a century. Nearly everywhere where major deposits of oil-rich shale could be found — central Pennsylvania, near the original Rockefeller-era oil strikes; the foothills of Colorado; the plains of Oklahoma and West Texas; and especially the Bakken formation in North Dakota — there were now thousands of new oil wells producing fracked crude cheaper and faster than Alberta’s bitumen could get to market. The shale threat had stalked the Patch for nearly its entire history — Karl Clark’s colleagues fretted over it in the 1950s, and Peter Lougheed worries in the 1970s that Colorado shale would eliminate the market for new bitumen if the in situ deposits weren’t developed. And now the feared shale boom had arrived. While activists mounted noisy campaigns against the eight hundred thousand barrels of oil Alberta producers wanted to ship to the United States via Keystone XL, American shale producers increased domestic oil supply by more than two million barrels per day from 2010 to 2013 alone. And the bonanza meant that Barack Obama had more wiggle room by the day to delay a verdict on the pipeline. The urgency was gone. The Patch had lost much of its leverage.”